Online spread betting is very often touted as a quick and easy way to make money but this isn’t exactly the case. Admittedly, you can make very quick money by placing the right bets but likewise you can also lose your money just as quickly, if not quicker, if you fail to follow some basic rules. Limiting your losses when spread betting isn’t rocket science and it can easily be achieved by using simple, yet effective stop loss functions.
Primarily, you will come across three kinds of stop losses; standard stops, guaranteed stops and trailing stops. Each of these spread betting facilities offers its own pros and cons, as we will explain.
Standard Stops: Also known as non-guaranteed stops, standard stops are facilities at spread betting companies that allow you to set automatic closes for your bets once a preselected price has been reached or surpassed. Standard stops are the stops that are most commonly employed by experienced spread bettors. Do be aware that, due to the way that markets function and due to the way that standard stops work, sometimes a non-guaranteed stop loss order can take a while to take place, if the closing price is achieved during the night for example. This could possibly lead to orders closing at a lower price than your stop and in some cases, way more!
Guaranteed Stops: If you don’t want to leave stop losses to chance and you don’t want your closing price to be missed, you should use guaranteed stop losses. These absolute commands ensure that the second your stop level is reached your bet is closed. “Why doesn’t everybody use these stops by default?” I hear you say. The reason is that guaranteed stop losses come with a levy. The size of the spread is increased to compensate the spread betting firm for taking some of the risk away from your bet.
Trailing Stops: If you want to try and make a profit automatically while your bets sit and do their own thing then trailing stops may be the way to go. A trailing stop loss tracks your market position as the market moves in your favour. However, if your bets starts to go wrong and the market falls by a predetermined amount, a trailing stop will automatically close your bet, locking any profits. Note that trailing stops are like non-guaranteed stops and sometimes these bets can take a while to close and could still lose you money.
Unquestionably, stop losses are a great tool for anybody who places spread bets but deciding which stop best suits your needs is a question you will need to answer for yourself, using your budget, betting style and fundamental market analysis to choose a stop loss that’s right for you.